Is Less Loss a Cause for Celebration?

Is Less Loss a Cause for Celebration?

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Photo from Picasa

Is Less Loss a Win?

Economics is difficult to understand at the macro level to begin with. Defining victory can be difficult, too. The Treasury Department announced that the White House is extending the 700 billion dollar bailout program until next October, in part because the government estimates they will lose only $141 billion instead of the anticipated $340 billion first forecast. On the surface that seems like it should be a very good thing. But is not losing $200 billion the same thing as having $200 billion? Not really is the answer for most of us considering the bailout was never fully funded with actual dollars to begin with. For most American taxpayers, losing less seems like very weak criteria for a victory.

Whose Dollar is it Anyway?

The bottom line no matter what economic system you use is that the bailout will still have lost $141 billion this year. So, who is going to pay for that loss? There are $141 billion dollars less to work with than there were before. The American taxpayer will foot the bill. What many in the government forget, along with most Americans, is that the federal government has very few revenue streams. When they say they will fund this or have lost that, it is the American taxpayer’s money that is going bye-bye. There is the perception that the money comes from somewhere else. There is no somewhere else. Every American taxpayer is paying a portion of this loss.

Are There any Bright Spots?

There are a few promising indications that the bailout could have a positive result. The banking industry seems to be doing better than expected. The Treasury reports that bank bailouts have actually netted American taxpayers $19.1 billion. Other industries, however, like insurance and auto are not faring near as well. Between AIG, Chrysler, and GM the losses total more than $61 billion: $30 billion from each sector. The mortgage industry remains in crisis and will get a big chunk of the remaining and future bailout money.

What to do Next?

There is great debate within Congress on what to do with any “extra” money that comes in as revenue from repayment of bailout funds or in funds already allocated that are no longer needed. Some feel the funds should be put toward giving incentives to businesses to spur hiring to combat the nation’s 10% unemployment rate. Others argue that it should continue to go to the targeted industries that remain in crisis. Still others argue that the money should be used to do what most individuals would do: use the money to pay bills. The last group wants to aim any remaining funds toward lowering the federal deficit like any responsible person would do.

Where will the Money Come From?

According to Treasury Secretary Timothy Geithner, the government is calculating that they will receive $175 billion be the end of fiscal 2010 and that $550 billion of the $700 billion in bailout funds will have been spent. Many in Washington are arguing over where to spend the “extra” money. So, the question remains: Where will the money come from?

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